RBS “within weeks” of huge US mortgage mis-selling fine

2 March 2018, 16:14

Royal Bank of Scotland (RBS) is edging towards a huge US mis-selling fine that will pave the way for the long-awaited privatisation of taxpayers' majority stake in the company.

Sky News has learnt that the lender is due to hold formal negotiations with the Department of Justice (DoJ) this month as discussions begin to focus on the size of the multibillion dollar penalty that RBS will ultimately pay.

A final deal over the bank's mis-selling of retail mortgage-backed securities (RMBS) prior to the 2008 financial crisis could be reached within a matter of weeks, sources said on Friday.

A figure significantly higher than the roughly $3.5bn (£2.5bn) that RBS has already set aside to cover the fine is now said to have been put on the table for the first time, they added.

However, the ongoing status of the discussions between lawyers for RBS and DoJ officials mean that a final settlement figure, and its timing, have yet to be determined.

Insiders said that the focus of the DoJ's work was on civil rather than criminal penalties being imposed on RBS.

News of the progress in the talks comes just a week after RBS reported an annual profit for the first time in a decade.

The bank warned that 2018's financial performance, and its ability to resume dividend payments for the first time since its £45.5bn taxpayer bailout, would be affected by the unresolved DoJ case.

"We remain committed to restarting capital distributions when permitted, with resolution with the US Department of Justice being a key milestone to enable this," it said last week.

One insider said that efforts by UK Treasury officials to accelerate the talks had been an important factor in expediting discussions between RBS and the DoJ.

Reaching a settlement is critical to RBS's investment case because it will remove the single-largest financial cost facing the bank, enabling it to open a dialogue with UK regulators about the resumption of dividend payments.

That, in turn, would broaden the bank's ownership base to include fund managers who only invest in dividend-paying stocks.

As well as the outstanding DoJ penalty, RBS also faces a number of much smaller RMBS probes in the US, as well as civil litigation relating to the malpractice which has seen other banks fined tens of billions of dollars.

Last week, RBS set aside an additional £442m to cover RMBS-related costs.

A number of lenders - including Deutsche Bank, which paid $7.2bn in 2016, and JPMorgan, which agreed a $13bn penalty three years earlier - have resolved their DoJ exposure over RMBS mis-selling, removing a layer of uncertainty for investors.

RBS last year paid $5.5bn (£4bn) to the Federal Housing Finance Agency (FHFA) in relation to the bank's issuance and underwriting of $32bn of RMBS during the leadership of former boss Fred Goodwin.

Talks between the DoJ and a cluster of international banks, which also includes Barclays, stalled for months following the election of Donald Trump, the US President, because of a dearth of senior officials within the agency.

Barclays is now engaged in a legal battle with the DoJ over its proposed penalty.

With the DoJ's staffing vacuum now resolved, both RBS and the UK Treasury want a settlement agreed as quickly as possible.

Philip Hammond, the Chancellor, has signalled that any further sale of the public's 71%‎ stake is contingent upon the US fine being announced.

He has publicly acknowledged that future disposals are likely to incur losses for British taxpayers - as the first sale sanctioned by George Osborne did in 2015.

RBS remains under pressure on several fronts, not least its treatment of small business customers during and after the banking crisis, but its financial performance has improved markedly.